Behind The Scenes: Unpacking The Memorandum Of Sale In UK Real Estate
The sale of a property in the UK involves reams of paperwork traversing lengthy legal processes. Most buyers and sellers will sign on the dotted line without fully grasping the intricacies contained within. A key document at the heart of any property transaction is the legally binding Memorandum of Sale, outlining the terms agreed between both parties. This article delves behind the scenes to unpack everything you need to know about Memorandums of Sale when buying or selling a home.
What Is A Memorandum Of Sale?
Also known as a ‘memo of sale’ or ‘contract of sale’, this document records the basic terms of agreement struck between the buyer and seller of a property. It is usually prepared by the seller’s solicitor.
The Memorandum of Sale specifies key details like the address, sale price, names of parties involved, and proposed completion date. It outlines any special conditions, and deposit payments, and confirms the seller will remove all items from the property unless explicitly agreed otherwise.
This important legal document represents the first step in making the transaction legally binding. Signing it means both buyer and seller must adhere to the agreed terms barring extremely limited circumstances.
When Is The Memorandum Of Sale Signed?
The Memorandum of Sales is typically signed immediately after the buyer’s offer has been accepted.
This assures the buyer before they commit to arranging surveys, mortgages and solicitors. For the seller, it limits their ability to back out or accept a higher subsequent offer on the property.
In England, Northern Ireland and Wales, signatures are usually made ‘subject to contract’ at this stage. This allows some limited room for negotiation around specifics before contracts are legally exchanged. However, in Scotland, signing immediately creates a binding legal contract of sale.
Once signed, the buyer will pay their deposit. The legal conveyancing process then proceeds, culminating in contracts being exchanged and the sale completing on the agreed completion date.
Why Is The Memorandum Of Sale Important In A Property Transaction?
This Memorandum performs a crucial function for both buyer and seller:
- It commits a buyer to purchase the property at the price agreed. This security enables you to proceed with your onward plans.
- It limits your ability to negotiate with or accept offers from another potential buyer while conveyancing proceeds.
- It secures the property for you ahead of exchanging contracts and paying the full price.
- It contractually obliges the seller to remove all their possessions, unless explicitly agreed otherwise in writing. This avoids ownership disputes later on fixtures, fittings and left contents.
- It provides reassurance you can undertake surveys, mortgage applications and solicitor work at risk before committing fully legally.
For both parties, it grants peace of mind during the conveyancing process that the agreed sale should proceed smoothly through to completion without major hiccups.
What Key Terms Are Included?
While Memorandums of Sale come in standard formats, the exact contents can vary. Key terms normally covered include:
- Names and addresses of the seller(s) and buyer(s).
- The full address and postcode of the property being sold.
- The amount of deposit money the buyer will pay on signature, and when this is due. Typically 5-10% of the purchase price.
- The final agreed sale price for the property.
- Any special conditions attached to the sale, like subject to survey or subject to contract.
- Proposed completion date when the full balance will be paid and ownership transfers.
- Confirmation the seller will remove all contents unless specifically itemised fixtures and fittings.
- Signatures of the seller(s) and buyer(s) to make the agreement legally binding.
The solicitor will tailor the terminology and phrasing to reflect what has been agreed between the parties based on standard legal conventions.
How Does The Buyer Pay The Deposit?
On signing the Memorandum of Sale, it becomes legally binding on the buyer to pay their deposit within an agreed timeframe, typically 5-10 working days. This is usually 10% of the purchase price but can range from 5-20%.
Payment methods include:
- Bank Transfer – Direct to the seller’s or estate agent’s bank account. This allows cleared funds to be received promptly.
- Personal Cheque – Unless certified, funds take 5-7 days to fully clear. Not ideal if the seller wants immediate deposit security.
- Banker’s Draft – A guaranteed way for buyers to pay large sums. The funds are immediately available.
Your solicitor or conveyancer will advise the optimal method. Transferring the deposit promptly prevents delays in holding up searches and surveys.
What Happens If A Buyer Withdraws After Signing?
Once legally bound by a signed Memorandum of Sale, the buyer has extremely limited rights to pull out of the purchase. Their deposit money will be forfeited in most cases.
Buyers would typically only be released from the contract if the seller has misrepresented the property, failed to remove contents as agreed, or if surveys uncover major structural issues that were undisclosed.
Unless such circumstances apply, the buyer faces legal action if they withdraw without good reason. The seller can pursue them for losses incurred, like lost property value, legal fees and delays to their onward chain.
This demonstrates why it is imperative buyers thoroughly view and survey properties before signing, and fully understand the implications of entering a Memorandum of Sale.
Can A Seller Withdraw Or Change Terms After Signing?
Equally, once signed, the Memorandum of Sale binds the seller legally to the agreed price and completion date terms. Their scope to renege, up the price or delay completion due to other offers, is severely limited.
If the seller withdraws or tries to renegotiate following the exchange of contracts, the buyer can sue them for any losses incurred and insist the courts force completion at the memorandum price.
However, between signing the memorandum and contract exchange, there can in some cases be room for limited renegotiation if both parties consent. However substantial unilateral changes by the seller remain legally risky after signing.
As above, this highlights why sellers must think carefully before accepting an offer and signing a memorandum committing to sale terms.
When Does The Sale Become Truly Legally Binding?
While signing the Memorandum of Sale commits both parties to the transaction under threat of legal action, some additional protection comes at contract exchange.
This usually happens around 4-6 weeks after the sale agreement. Contract exchange makes the deal 100% legally binding. No further negotiation is possible without penalty.
In exchange, the buyer pays their full deposit, usually another 5-10% of the purchase price. Only then will the seller take the property off the market? Until exchange, listings will still appear marked as ‘sale agreed’ or ‘under offer’.
Exchange and completion dates will be agreed between solicitors based on readiness. At completion, the buyer pays the outstanding balance and takes ownership. The seller vacates the property.
So the Memorandum of Sale represents the critical first step but further legal processes follow over subsequent weeks to complete the transaction.
The Memorandum of Sale document may seem like a routine piece of the process. But this legally binding agreement lies at the heart of any property sale, conferring key protections once signed.
For buyers, it provides assurance they can proceed with spending on surveys, mortgages and solicitors with confidence the seller must adhere to the price and terms agreed upon. For sellers, it offers certainty the buyer is committed legally, enabling preparations for onward moves.
Given the ramifications of a signed Memorandum of Sale, it is advisable for both parties to carefully review the document before signing and clarify any uncertainties. Inserting additional specific conditions at this stage is preferable to trying to renegotiate down the line.
While not final like contract exchange, Memorandums of Sale still carry considerable legal weight. Buyers and sellers should therefore think carefully before committing to terms. But when used properly, these documents provide a solid framework to smooth the path towards a mutually satisfactory property transaction.